The World Bank’s Misguided Green Energy Policies To Persist

Protesters demonstrating against the IMF and World Bank hold a street theater across from World Bank headquarters in Washington, DC, Saturday, April 16, 2005. Photographer: Jay Mallin / Bloomberg News

President Trump’s nominee to head the World Bank, David Malpass, was formally approved by a unanimous vote of its board of executive directors last week. When Malpass, an outspoken critic of the bank, was nominated in February, there were hopes that his successful appointment would represent a chance for the institution to break from its green policy orientation of the past three decades to return to its original charter of reducing global poverty.

Yet, in a news conference held on his first day in office, Malpass signaled no fundamental changes in the bank’s energy policy priorities. As part of the World Bank’s efforts to mitigate climate change, he said it would support policies which continue its ban on the financing of coal-fueled power plants. “With regard to coal, the board and its governors have established a policy on that and I don’t expect a change in that policy”, he said.

The World Bank imposed its ban on coal power project financing in 2013, followed by a stop to all new investments in oil and gas resource development projects shortly after. Its objections to fossil fuels development despite their importance to economic growth and poverty alleviation can be traced to the intellectual evolution of the institution’s management under the long tenure of James Wolfensohn during his decade as president (1995 – 2005).

If the ancien regime at the bank emphasized the classical liberalism of Adam Smith with its policy package supporting free trade, competitive markets, entrepreneurship and sound money, the new focused on dirigiste economics that saw a critical government role in attending to the theoretical failures of free markets.

And if the “old” World Bank policy advisers consisted of the likes of Lawrence Summers (Clinton’s Treasury Secretary and previous Chief Economist of the World Bank) who promoted free enterprise and human capital development, the new consisted of a melange of interests including social and environmental non-governmental organizations, the left-leaning UN specialized agencies and development aid groups.

The intellectual environment of the bank that gestated during Wolfensohn’s reign is personified by economists and political philosophers such as Joseph Stiglitz and President Barack Obama. Stiglitz, a Nobel Prize winner for economics and Chief Economist of the World Bank (1997 – 2000), wrote in a 2015 court brief for a climate lawsuit brought on behalf of a group of children against the US Federal government that “fossil fuel-based economies imposed ‘incalculable’ costs on society and shifting to clean energy will pay off.” As for President Obama, his noted flights of oratory include his hubristic 2008 speech that promised that the future would look to that moment (on his winning the primaries) “when the rise of the oceans began to slow and our planet began to heal.”

In an assessment of the role of the World Bank in the late 1990s when global capital markets had expanded tremendously and the development role of the Bank was by no means obvious, the notable economist Anne Krueger (then Vice President of Research at the Bank) elaborated on three possible outcomes. First, shut the bank down given the tremendous progress in reducing world poverty already becoming apparent by then; second, continue to exist but with a sharply narrowed focus on only the poorest of nations (primarily in Sub-Saharan Africa); or third, serve a wider set of “societal issues” that include the panoply of “civil society” concerns with gender, social justice and climate change that we have become so familiar with.

As history would have it, the third option was the one chosen. Rupert Darwall, a former adviser to the United Kingdom’s Chancellor of the Exchequer put it as follows:

The World Bank’s mission has been subverted by green ideologues who assert that a low-carbon world benefits the world’s poor but fail to acknowledge that making energy much more costly increases poverty. The World Bank tags itself as ‘working for a world free of poverty’. Its prioritization of renewable investment and its embargo on coal investments demonstrate this is no longer the case. In making its choice between development and sustainability, the World Bank has decided it is going to try and save the planet on the backs of the poor.

Environmental activists rarely acknowledge that there has not been a single instance of a poor country successfully developing to middle income status without the extensive use of fossil fuels. Indeed, universal access to affordable energy based on fossil fuels is a defining feature of modern life and its comforts. The cities of Western Europe, North America and Japan have been rid of urban smog while ensuring clean, reliable and affordable energy with improved fossil-fueled power generating technologies and cleaner transport and cooking fuels.

But, as Darwall and other development professionals have noted, the World Bank has taken a lead role in denying poorer countries the pattern of economic growth and environmental improvement that the now-rich countries had taken so successfully since the 1970s. The bank’s enthusiastic support for intermittent, low-yield renewable energy such as solar and wind power comes at the cost of its central charter to help reduce the remaining pockets of global poverty afflicting an estimated one billion people.